US sues to block American Airlines-US Airways merger

The US Department of Justice has moved to ground an $11bn merger between US
Airways and American Airlines, tying the deal up in red tape and potentially
putting American on the brink of bankruptcy.

By Katherine Rushton, US Business Editor

4:45PM BST 13 Aug 2013

The regulator filed a lawsuit against the US Airways and American Airline’s parent company, AMR Corporation, claiming that their proposed tie-up violates anti-trust laws, and would lead to less competition and higher prices for consumers.

Shares in US Airways fell 13.1pc in New York. However, the repercussions are potentially more serious for AMR, which filed for Chapter 11 bankruptcy protection in November 2011. AMR shares fell 45.4pc.

The deal, which would create the world’s biggest airline, had already been approved by European regulators. American regulators were expected to follow suit, after they blessed the marriages of six other loss-making airlines over the past five years in order to help them cut costs.

Delta Air Lines was allowed to merge with Northwest; United and Continental were allowed to become United Continental Holdings; and Southwest Airlines was allowed to join forces with Air Tran. Those deals have helped the US airline industry move back into profit, after a painful eight years to 2009, when they clocked up more than $58bn in collective losses.

However, the DoJ said on Tuesday that the $11bn merger between AMR and US Airways posed too much risk to consumers, and prepared itself for a battle that could leave the companies with considerable overheads compared with their rivals.

The two carriers had planned to operate as American Airlines, under the leadership of US Airways chief executive Doug Parker. He would sit in a 12-person board alongside three AMR directors including American’s chief executive Tom Horton, and five directors to be elected by AMR’s creditors.

The combined company, which was expected to cut around $1bn a year in costs, would have been 72pc held by the creditors. The remainder would be owned by US Airways, which began pushing for the merger as soon as AMR filed for bankruptcy.

Rival airlines such as Jet Blue had expressed fears that the enlarged company would have too much power to command prized landing slots at airports, particularly at Washington’s Reagan Airport. AMR and US Airways denied this was the case.

European airlines also expressed concern that it would dominate certain transatlantic routes. The European Union only sanctioned the merger after the companies said they would give up the right to run a daily return flight between London’s Heathrow and Philadelphia.